Connecticut, like other states, prohibits insurance companies from providing premium rebates to policyholders to induce sales. Does an insurer that provides technological innovations to its policyholders for free or at a discount risk violating the rule against rebating? The Connecticut Insurance Department (CID) recently addressed this issue. On December 18, Commissioner Andrew Mais issued Bulletin S-18, clarifying the Department's current position on the practice of "rebating," i.e., offers made by or on behalf of a carrier to provide a product and/or service to insureds at no cost or at a discounted price. Bulletin S-18 evaluates two statutes that address this practice, C.G.S. Sections 38a-825 (applicable to insurers and producers generally) and 38a-623 (applicable to fraternal benefit societies). The CID notes that its new guidance grows out of recent technological advances, which have allowed insurers to provide innovative, value-added services and programs for loss mitigation. The new technology clearly benefits consumers and insurers. Specifically, the bulletin states that CID will not view an insurer's offering these value-added services to constitute impermissible rebates under the statutes, when the insurer meets certain requirements (as discussed below).
State statutes and regulations prohibiting rebating in the insurance industry are virtually universal across America, with a history going back well into the middle of the last century. (Connecticut originally adopted the current version of its rebating prohibition in 1949.) The original purpose of these laws was to prevent life insurance companies from undermining their solvency through excessive rebating. The prohibitions eventually spread to all lines of coverage, however.
Over the past decade, Internet-connected devices–the Internet of Things (IOT)–have made possible powerful new loss-mitigation tools. Carriers have developed IOT-based products and/or services that mutually benefit the insurer and the insured by reducing the likelihood of a covered loss occurrence. For example, new IOT devices can detect and report water leaks and temperature changes and, thus, alert homeowners to dangerous conditions before major damage results. Other IOT examples include telematics devices for automobile policyholders and biometric wearables.
Connecticut's new bulletin makes clear that insurers may provide these value-added products and services for loss mitigation, and rate or claim reduction, to insureds at no cost or at a discount without violating Sections 38a-825 or -623, IF such product or service:
- (1) has a legitimate nexus to the value of the insurance coverage provided by the insurance contract;
- (2) is filed for approval within previously approved or new product contracts with loss mitigation/value-added services and programs listed in brackets to indicate the variable nature of each offering within the contract. In addition, an annual filing amending previously approved filings should be made for any updates or revisions to the variable offerings within the contracts, if necessary; and
- (3) is offered or provided in a fair and nondiscriminatory manner to insureds.
Whether carriers may offer at no cost or at a discount a product or service not specified in the policy is left open for fact-specific analysis. The key issue there will be whether the offer is an inducement to purchase the policy or a legitimate customer service, risk assessment, loss control, or educational service. The former likely would create a rebating issue, while the latter would not.
The new guidance evidences CID's desire to ensure that Connecticut policyholders can enjoy the benefits of the new IOT-enabled technology to mitigate or entirely avoid insured losses.